Executive Briefings

How Amazon and Wal-Mart Are Poised to Swoop In on Toys 'R' US

By: Fortune 01.26.2018

As expected when it filed for bankruptcy protection last summer, struggling toy retailer Toys ‘R’ Us is closing an enormous number of stores, 180 stores to be specific or nearly 20 percent of its fleet, as it tries to get back to being a viable chain.

Toys ‘R’ Us on Monday night asked federal bankruptcy court in Richmond, Virginia for permission to close those stores, saying it has “faced a challenging commercial environment” made worse, it claimed, by consumer preferences to online stores from brick and mortar stores.

The company had been weighed down by enormous debt levels — $5bn pre-bankruptcy, and years of weak sales as business did indeed defect to Amazon.com, but also to major chains like Target and Wal-Mart, which have proven far more adept at withstanding competition from Amazon but also made their toy offerings far more enticing.

And those problems have persisted. In a memo to staff obtained by Bloomberg News, Toys ‘R’ Us CEO Dave Brandon said the holiday season had been “very challenging.” That followed a third quarter when comparable sales fell 7 percent in the United States as the turmoil of the bankruptcy exacerbated its already stumbling business. Through the first three quarters of this fiscal year, the chain had a net lost of $862m.

The closures, which include one in its hometown of Wayne, N.J., will begin in February and conclude by April and nearly half of the locations will be Babies ‘R’ Us stores. Baby products generated 45 percent of company revenues in the first nine months of the fiscal year.

Toys ‘R’ Us on Monday night asked federal bankruptcy court in Richmond, Virginia for permission to close those stores, saying it has “faced a challenging commercial environment” made worse, it claimed, by consumer preferences to online stores from brick and mortar stores.

The company had been weighed down by enormous debt levels — $5bn pre-bankruptcy, and years of weak sales as business did indeed defect to Amazon.com, but also to major chains like Target and Wal-Mart, which have proven far more adept at withstanding competition from Amazon but also made their toy offerings far more enticing.

And those problems have persisted. In a memo to staff obtained by Bloomberg News, Toys ‘R’ Us CEO Dave Brandon said the holiday season had been “very challenging.” That followed a third quarter when comparable sales fell 7 percent in the United States as the turmoil of the bankruptcy exacerbated its already stumbling business. Through the first three quarters of this fiscal year, the chain had a net lost of $862m.

The closures, which include one in its hometown of Wayne, N.J., will begin in February and conclude by April and nearly half of the locations will be Babies ‘R’ Us stores. Baby products generated 45 percent of company revenues in the first nine months of the fiscal year.